http://www.zerohedge.com/news/2014-02-10/guest-post-will-austrian-bank-woes-be-again-catalyst-european-kondratieff-winter
Submitted by Tyler Durden on 02/10/2014 15:07 -0500
Guest Post: Will Austrian Bank Woes Be Again the Catalyst For A European Kondratieff Winter?
Originally posted at The Prudent Investor blog,
Sad affairs have been heating up in the tiny Alpine republic in the center of the European Union. While Austria experiences record unemployment at record growth rates and tax revenues have fallen behind optimistic projections, the looming bankruptcy of a mid-sized regional bank, Hypo Group Alpe Adria (HGAA), may propel the country to the disdained position of being the catalyst for a new round of bank failures due to interwoven banks risks on both the domestic and the international level.
Austrian politicians are up in arms since a third-party expert opinion that recommends to wind down the bank at a cost of €18 billion has been leaked to the media, but keep on marching on the most fatal route that will not dissolve the problems: They keep flogging the dead horse HGAA with taxpayer's millions in a monthly money injection routine that has cost so far around €4.5 billion.
Current talks involving politicians appear to be more adequately suited for the Vienna opera house, but not for a rolling high finance train wreck that needs more than monthy band aids.
On Monday Austrian financial market authority FMA publicly said what the official Austria never wanted to hear as it is now confronted with a widening public discussion on a problem it had surrealstically hoped to brush under the carpet. FMA head Harald Ettl warned that any further delay would make the – in this blogger's humble opinion doomed HGAA – an incalculable risk and that Austria should consider no option as a taboo anymore.
Nothing could be more true. An unorderly liquidation of HGAA will not only push Austria from the throne of the best economy in the Eurozone, pushing its public debt to GDP ratio well over 100%, but will also have continent wide reverberations.
Bad Bank Idea Stopped In its Tracks by RBI
The governments preferred solution, a bad bank for HGAA with the other Austrian banks as shareholders was stopped in its tracks on Monday.
Raiffeisenbank International (RBI) CEO Karl Sevelda ruled out his participation in such a special purpose vehicle, claiming his shareholders will vote "no" on this issue. RBI is laden down with its own problems like a 3-digit billion exposure to ailing Central Easter Europe's countries where it had applied an aggressive "growth before everything else" strategy that is now becoming a boomerang due to to mounting bad loans.
The government was desperate to push through such a bad bank scenario as this would have helped to avoid a rapid expansion in public debts. Without a bad bank HGAA's debts would trigger guarantees from the owner, the province of Carinthia. As Carinthia is technically bankrupt itself this would lead to triggering state guarantees as Austrian laws do not provide for the bankruptcy of a province.
The FMA's comments on HGAA will at least have one effect: Fingerpointing between those responsible for the whole mess has already begun. Austria's central bank, which issued a "no problem" expertise about HGAA at the beginning of the financial crisis in 2008, is more focussed on avoiding investor litigation that could hit the institution based on this old "expertise."
So where do we go from here? As a dyed in the wool Austrian it can be assumed that the Austrian grand coalition, under fire from all sides since its formation last November because it has only come up with new tax ideas but no sizable savings in its expenditures, will apply the ostrich strategy once more.
Alas, this time the government may not find the time to sip coffee and push the debt wagon further as the EU is watching developments closely. On Monday Daniele Nouy, head of the newly formed EU banking authority EBA warned in an interview with the Financial Times, that it may not be appropriate to merge very sick banks with their not so sick counterparts. While not naming HGAA directly Nouy said, "we have to accept, that some banks will disappear."
Austria's banking woes look eerily similar to the failure of Creditanstalt in 1931 that was the fuse for the last European Kondratieff winter. For those sticking with K-cycles this may not be a good outlook. 83 years later such an event is more than overdue in Europe and given Europe's overall outlook it does not take much anymore to set the Great EU Chaos into full fledged motion.
Chart: The Long Wave Analyst
http://www.zerohedge.com/news/2014-02-10/breathtaking-corruption-europe
"Breathtaking" Corruption In Europe
Submitted by Tyler Durden on 02/10/2014 12:12 -0500
- Bulgaria
- Corruption
- Czech
- France
- Germany
- Greece
- Hungary
- Lithuania
- Newspaper
- Poland
- Romania
- Slovakia
- Testimony
- Turkey
Submitted by Pater Tenebrarum of Acting-Man blog,
A recent article at the BBC discusses the findings of a report by EU Home Affairs commissioner Cecilia Malmstroem on corruption in the EU. According to the report, the cost of corruption in the EU amounts to €120 billion annually. We would submit that it is likely far more than that (in fact, even Ms. Malmstroem herself concurs with this assessment).This is of course what one gets when one installs vast, byzantine bureaucracies and issues a veritable flood of rules and regulations every year. More and more people are needed to administer this unwieldy nightmare of red tape, and naturally the quality of the hires declines over time due to the sheer numbers required.
Moreover, many small to medium sized businesses would probably not be able to survive if they didn't occasionally bribe officials. Big business considers bribes a perfectly normal cost of business anyway, especially when the business concerned involves milking tax cows. As you will see further below, the defense business – or better the war racket – is especially prone to corruption. Tax payers of course end up paying every cent. Another sector that is apparently subject to widespread corruption is health care – which should be no surprise, since health care provision is an almost fully socialistic enterprise in Europe. Bribes may well mean the difference between life and death in some instances. You will probably also not be overly surprised to learn that there was VAT fraud amounting to €5 billion in the bizarre and totally ineffective and useless 'carbon credits' market, which has turned into a boondoggle of amazing proportions. There's simply no other way of making a mint in that market we suppose. From the BBC:
“The extent of corruption in Europe is "breathtaking" and it costs the EU economy at least 120bn euros (£99bn) annually, the European Commission says. EU Home Affairs Commissioner Cecilia Malmstroem has presented a full report on the problem.She said the true cost of corruption was "probably much higher" than 120bn. Three-quarters of Europeans surveyed for the Commission study said that corruption was widespread, and more than half said the level had increased."The extent of the problem in Europe is breathtaking, although Sweden is among the countries with the least problems," Ms Malmstroem wrote in Sweden's Goeteborgs-Posten daily.The cost to the EU economy is equivalent to the bloc's annual budget. For the report the Commission studied corruption in all 28 EU member states. The Commission says it is the first time it has done such a survey.National governments, rather than EU institutions, are chiefly responsible for fighting corruption in the EU.[…]In some countries there was a relatively high number reporting personal experience of bribery. In Croatia, the Czech Republic, Lithuania, Bulgaria, Romania and Greece, between 6% and 29% of respondents said they had been asked for a bribe, or had been expected to pay one, in the past 12 months. There were also high levels of bribery in Poland (15%), Slovakia (14%) and Hungary (13%), where the most prevalent instances were in healthcare.[..]Last year Europol director Rob Wainwright said VAT fraud in the carbon credits market had cost the EU about 5bn euros.”
(emphasis added)
And that is merely what they actually know about. Remember, there are known unknowns and unknown unknowns here as well, and they probably dwarf what is actually known. One gets an inkling of how big the problem may really be when considering the case of Greece.
The EU corruption map according to the official report – via BBC.
Bribes Exceeding Greek Official's Memory Storage Capacity
Greece is of course a special case in terms of official corruption. If you ever wondered how the country could go bankrupt in such short order after joining the euro zone, wonder no longer. Here are a few excerpts from a recent article in the NYT about a lower level official in the defense ministry who received so many bribes that he cannot even remember them all anymore. The amounts involved are astonishing:
“When Antonis Kantas, a deputy in the Defense Ministry here, spoke up against the purchase of expensive German-made tanks in 2001, a representative of the tank's manufacturer stopped by his office to leave a satchel on his sofa. It contained 600,000 euros ($814,000).Other arms manufacturers eager to make deals came by, too, some guiding him through the ins and outs of international banking and then paying him off with deposits to his overseas accounts.At the time, Mr. Kantas, a wiry former military officer, did not actually have the authority to decide much of anything on his own. But corruption was so rampant inside the Greek equivalent of the Pentagon that even a man of his relatively modest rank, he testified recently, was able to amass nearly $19 million in just five years on the job.”
One certainly wonders what more powerful officials were able to skim off. Unfortunately, corruption is so widespread and reportedly involves the highest echelons of the bureaucracy and the body politic in Greece, so that one must expect that we will never find out. No wonder there is a lot of tax evasion in Greece: who wants to hand over his hard earned money to such a gang of thieves? It is like paying off the mafia.
Meanwhile, the companies paying the bribes are of course just as guilty, and many of them come from countries that are themselves ranked relatively low on the corruption scale – e.g. Germany and Sweden. It seems to be an 'opportunity makes thieves' type situation.
“Never before has an official opened such a wide window on the eye-popping system of payoffs at work inside a Greek government ministry.At various points, Mr. Kantas, who returned to testify again last week, told prosecutors he had taken so many bribes he could not possibly remember the details.[…]Mr. Kantas's testimony, if accurate, illustrates how arms makers from Germany, France, Sweden and Russia passed out bribes liberally, often through Greek representatives, to sell the government weaponry that it could ill afford and that experts say was in many cases overpriced and subpar.The 600,000 euros, for instance, bought Mr. Kantas's silence on the tanks, which were deemed of little value in any wars Greece might fight, according to Constantinos P. Fraggos, an expert on the Greek military who has written several books on the subject. Greece went ahead and bought 170 of the tanks for about $2.3 billion.Adding to the absurdity of the purchase (almost all of it on credit), the ministry bought virtually no ammunition for them,Mr. Fraggos said. It also bought fighter planes without electronic guidance systems and paid more than $4 billion for troubled, noisy submarines that are not yet finished and sit today virtually abandoned in a shipyard outside Athens. At the height of the crisis, when it was unclear whether Greece would be thrown out of the euro zone and long before the submarines were finished, the Greek Parliament approved a final $407 million payment for the German submarines.”[…]The Defense Ministry is hardly the only ministry suspected of being a hotbed of corruption. But the Defense Ministry makes a particularly rich target for investigators because Greece went on a huge spending spree after 1996 when it got into a low-level skirmish with Turkey over the Imia islets in the Aegean Sea.One former director general of the Defense Ministry, Evangelos Vasilakos, calculated that Greece spent as much as $68 billion on weaponry over the next 10 years, much of it borrowed money. To win these deals, which involved the approval of military and Defense Ministry officials, as well as Parliament, arms dealers probably spent more than $2.7 billion on bribes, according to Tasos Telloglou, an investigative reporter for the Greek daily newspaper Kathimerini, who has written extensively on the subject.”
(emphasis added)
Buying $68 billion worth of largely useless weaponry is certainly quite a feat for a country of slightly over 11 million inhabitants. The Saudis may well be able to top that on a per capita basis, but they have a lot of oil money and haven't required a bailout from anyone. Greece was not able to actually afford these expensive toys.
Even if the weapons were in perfect working order, this buying spree wouldn't make any sense. Is Greece really going to fight a war with Turkey, a NATO partner? The very idea is absurd. Since we can rule this possibility out, what on earth are the weapons good for?
We can hereby amend Randolph Bourne's famous saying: 'War is the health of the State – and its minions and suppliers'.
Say hello to a white elephant in the Greek shrubbery.
Farage Blasts "Bullying Brussels", Cheers Swiss Immigration Curbs Bill
Submitted by Tyler Durden on 02/10/2014 13:53 -0500
Switzerland's surprise decision in favor of curbing EU immigration, was greeted by UKIP's Nigel Farage as "wonderful news for national sovereignty and freedom lovers throughout Europe." With 50.3% of Swiss voters backing the "Stop Mass Immigration" bill proposed by right-wing populists, AFP reports that Farage (who has been outspoken over immigration and sovereignty problems in Europe) added "a wise and strong Switzerland has stood up to the bullying and threats of the unelected bureaucrats of Brussels." As we noted previously, with the EU elections rapidly approaching non-centrist status quo parties are quickly gaining attention as 'the protest vote' gains traction.
Via AFP,
The leader of Britain's main eurosceptic party hailed "wise" Swiss voters Sunday for backing curbs on EU immigration, saying it would encourage others across the continent.Nigel Farage, the head of the UK Independence Party, said Switzerland had stood up to "bullying" from Brussels and that it was "not a matter of race but of space.""This is wonderful news for national sovereignty and freedom lovers throughout Europe," said Farage, who is a member of the European parliament (MEP)."A wise and strong Switzerland has stood up to the bullying and threats of the unelected bureaucrats of Brussels."Final results from a referendum showed that 50.3 percent of Swiss voters had backed the "Stop Mass Immigration" proposal pushed byright-wing populists, threatening to ignite a row with Brussels.UKIP has led calls for similar calls for a cap on immigration, a touchy issue in Britain since Bulgarians and Romanians were given full rights on January 1 to free movement within the European Union.Farage added: "It is a great thing to be welcomed that the Swiss people now have the freedom to decide the number and skill level of the people who they wish to invite to work or stay in their country.""It is not a matter of race but of space, of numbers and of skills," he said.
Of course this move is a blow for a Europe "run by big banks, big business, and big government" as Farage has described it in the past but we thoght this brief discussion from the UK (Boston, Lincolnshire) was useful in summing up the rising tensions from both the people and non-status-quo politicians looking for change...
It would seems to us that one 'event' that no one is discussing as a catalyst is the EU elections and here, from El Pais, is a very enlightening graphic showing the considerable growth in "Extreme Right" parties across the entire European region:
Whether, as Farage has warned in the past, we remain on the verge of social unrest is unclear but for sure this is not the poltical union that Barroso pitches it to have become...
http://www.telegraph.co.uk/finance/financialcrisis/10629658/ECB-paralysed-by-German-court-decision-as-deflation-threatens.html
8:51PM GMT 10 Feb 2014
75 Comments
Last week’s ‘thunderbolt’ ruling on eurozone rescue policies by Germany’s top court marks a serious escalation of Europe’s governance crisis and may ultimately force Germany to withdraw from the euro, the country’s most influential magazine has warned.
A sweeping report by Der Spiegel said the court ruling amounts to a full-blown showdown between Germany and the European Central Bank over the methods to shore up southern Europe's debt markets.
“It is nothing less than a final reckoning with the crisis-management strategy pursued by the ECB. The German justices insist that the German constitution sets limits on the ECB’s crisis strategy. In a worst-case scenario, the Court could forbid Berlin from contributing to efforts to save the euro or even force Germany to leave the currency zone entirely,” it said.
The warning came as market analysts began to see the darker implications of the ruling, which was initially seen as a green light for the ECB's bond operations.
Germany’s top institutes questioned whether quantitative easing is still possible in this political climate, leaving it unclear how the region can respond if deflation draws closer. “I think generally bond buying is now difficult territory,” said Clemens Fuest, head of the ZEW Institute.
Marcel Fratzscher, head of the DIW Institute, said the ruling greatly constrains the ECB. "A central bank must have unlimited scope for conducting monetary policy. If this prerogative is limited, it undermines credibility. The constitutional court has created fresh uncertainty with this decision," he said.
The German court in Karlsruhe said there were grounds for concluding that the ECB’s back-stop plan for Italy and Spain - known as the OMT - breaches the ECB’s mandate and violates the treaty prohibition on “monetary financing” of budgets. It did not address QE as such, but that distinction is becoming irrelevant in Germany.
“However they do it people will say ‘you are circumventing the OMT discussion’,” said Mr Fuest, addressing a Reuters forum in Frankfurt. He said the ECB may have to resort to other means to combat any spill-over from the emerging market storm this year, even if these are weak instruments.
Olli Rehn, the EU’s economics commissioner, told the forum that the ruling changes little. “The ECB certainly has its big bazooka and plenty of ammunition for the bazooka if needed. In my view the ECB has definitely worked within its mandate,” he said.
However, German eurosceptics were in ecstasy. “Finally, a court has found that the ECB’s bond-buying program is a clear violation of European law,” said professor Bernd Lücke, head of the AfD anti-euro party. Bavarian politician Peter Gaulweiler, a plaintiff in the case, said “Karlsruhe has shown ECB president Mario Draghi what a bazooka really is.”
While the court referred the case to the European Court (ECJ) for a preliminary ruling, it did so in such a way as to pre-judge the matter and fire a warning shot across the bows of EU institutions. Retired judge Udo di Fabio said it was intended to bind the hands of the ECJ in advance.
The German court does not accept the primacy of EU law over Germany’s Basic Law, and reserves the right to strike down any decisions by the ECJ, but views on this cover a wide spectrum. Gunnar Beck, an expert on European law at the University of London, said the German court is legally obliged to follow the verdict of the ECJ and has in effect cleared the way for a positive ruling by referring the case and "washing its hands" of matter.
Hans Werner Sinn, head of the IFO institute, said the German government cannot ignore the judgement by Karlsruhe “whatever the ECJ says”, and warned that markets were likely to react badly once they grasp that “German resistance” to eurozone rescues is hardening.
The German court said the ECB’s actions are probably “Ultra Vires”. If so, German institutions such as the Bundesbank are prohibited from taking part.
The ECB can in theory carry out rescue policies without the Bundesbank. Whether this would have any market credibility in a crisis is doubtful.
and.....
Anything that annoys the nannycrats and monetarists while pleasing the euroskeptics cannot possibly be all bad. Let's take a look at what others said about the ruling.
What German Court Ruling Means for the Euro
Here are a few snips from the Spiegel Online article What German Court Ruling Means for the Euro
Ambrose Evans-Pritchart at the Telegraph claims ECB Paralysed by German Court Decision as Deflation Threatens
Financial Times writer Wolfgang Münchau says Germany’s Constitutional Court has Strengthened the Eurosceptics.
Those looking for a bonus 4th reason to be pleased with this ruling, need only note that Münchau seems furious, complaining "What irks me is the you-deserve-what-you-get attitude."
I nearly always find Wolfgang Münchau's analysis interesting. However, I seldom agree with his conclusions about what is best.
In this case, the nannycrats seriously deserve to be punished for their arrogance, comeuppance, and general disregard for laws of all sorts simply because it suits their purpose.
Half a Tiger
My initial reaction was the court punted. I now wonder if they did so on purpose. Regardless, half a tiger is better than a kitten or an ostrich. The court could have ruled OMT was valid or simply passed on the case.
The euroskeptics are emboldened and I sense an outright massacre of nannycrats in the May parliamentary elections.
Things are looking up, unless you are a nannycrat.
Mike "Mish" Shedlock
and.....
Wednesday, February 12, 2014 1:45 AM
Rethinking "Paper Tiger"
Last Friday, in "Paper Tiger" I expressed the viewpoint that the German constitutional court caved in to the ECB, then bowed down before the European Court of Justice in Luxembourg.
It's time to reconsider. Here are three good reasons:
It's time to reconsider. Here are three good reasons:
- AfD, the German euroskeptic party was thrilled with the ruling
- The nannycrats are furious
- The monetarists scream paralysis
Anything that annoys the nannycrats and monetarists while pleasing the euroskeptics cannot possibly be all bad. Let's take a look at what others said about the ruling.
What German Court Ruling Means for the Euro
Here are a few snips from the Spiegel Online article What German Court Ruling Means for the Euro
Germany's Constitutional Court ruling last Friday marks a significant escalation in efforts to rein in the European Central Bank. The ruling's message? Either the European Court of Justice has to stop bond purchases or German justices will.ECB Paralysed by German Court Decision as Deflation Threatens
Last Friday, when six justices on Germany's Constitutional Court cast doubt on European efforts to save the euro, the man who initiated the case was sitting obliviously at his desk. It was only when his secretary burst excitedly into his office that Peter Gauweiler understood that his case had created legal history.
Gauweiler, a member of German parliament who also has a legal firm located in Munich, managed to convince a majority of justices on the court's second senate that the ECB's program to save the European common currency is contrary to European law. The court referred the case onward to the European Court of Justice in Luxembourg, a first for the Karlsruhe-based German court. "Karlsruhe has shown ECB President Mario Draghi what a bazooka really is," Gauweiler crowed.
Gauweiler is likely the only German parliamentarian for whom the ruling is cause for such elation. The case regarding the legality of ECB efforts to assist ailing euro-zone member states has been ongoing for more than a year -- and Friday's move to refer the issue onward to Luxembourg has triggered concern and impatience among politicians in Berlin and the rest of Europe.
Sending the case to Luxembourg only appears to be an act of European conviction at first glance. In truth, it is nothing less than a final reckoning with the crisis-management strategy pursued by the ECB. There can be no doubt about it: The Constitutional Court is threatening to cause trouble.
In a worst-case scenario, the Constitutional Court could forbid Berlin from contributing to efforts to save the euro or even force Germany to leave the currency zone entirely.
Clemens Furst, head of the Center for European Economic Research, calls last Friday's ruling a "thunderbolt." The German court, he said, has made it clear that it finds OMT to be extremely problematic. "It is a clear signal," he says.
Hans-Werner Sinn, the euro-skeptic head of the Munich-based Ifo Institute, believes that the German court's position "will not remain without consequences for ECB monetary policies." Furthermore, the ruling "will strengthen the position of euro critics and the general skepticism Germans have of the ECB."
Politicians in Berlin, by contrast, are furious. "Why not just go ahead and continually review everything the government does?" snapped one conservative. He says the referral to the European court could slow euro-zone policy for the foreseeable future.
Of course, members of AfD are extremely pleased with last Friday's ruling. "I am enormously satisfied with the decision," says party head Bernd Lucke. "Finally, a court has found that the ECB's bond-buying program is a clear violation of European law." He adds that the ruling provides "an important boost for the campaign."
It is also a clear indication that Germany's highest court is extremely skeptical of the ECB. Draghi's 2012 announcement that the ECB would embark on unlimited sovereign bond purchases from ailing euro-zone member states, the court found, is incompatible with European law. The ruling notes that OMT "exceeds the mandate" of the ECB and "encroaches on the responsibility of the member states for economic policy." Furthermore, it finds that the purchasing of sovereign bonds on secondary markets represents a "circumvention" of the prohibition against direct state financing.
The finding of the German Constitutional Court, say European central bankers, is even more critical than the skepticism voiced internally. The justices, it is felt, would likely forbid instruments such as Quantitative Easing as well.
They could be right. The Karlsruhe justices feel stronger than ever. For the first time, they dared to do what they had been threatening to do for years: They branded a European decision as ultra vires and thus found it to be inconsistent with the German constitution. Sending this finding to a European court has far-reaching implications for the court's reputation and authority: "The ruling will now be translated into the 23 other official EU languages and sent to all EU member states," one Constitutional Court insider noted with gratification.
Ambrose Evans-Pritchart at the Telegraph claims ECB Paralysed by German Court Decision as Deflation Threatens
Last week’s ‘thunderbolt’ ruling on eurozone rescue policies by Germany’s top court marks a serious escalation of Europe’s governance crisis and may ultimately force Germany to withdraw from the euro, the country’s most influential magazine has warned.Germany’s Constitutional Court has Strengthened the Eurosceptics
A sweeping report by Der Spiegel said the court ruling amounts to a full-blown showdown between Germany and the European Central Bank over the methods to shore up southern Europe's debt markets.
“It is nothing less than a final reckoning with the crisis-management strategy pursued by the ECB. The German justices insist that the German constitution sets limits on the ECB’s crisis strategy. In a worst-case scenario, the Court could forbid Berlin from contributing to efforts to save the euro or even force Germany to leave the currency zone entirely,” it said.
The warning came as market analysts began to see the darker implications of the ruling, which was initially seen as a green light for the ECB's bond operations.
Marcel Fratzscher, head of the DIW Institute, said the ruling greatly constrains the ECB. "A central bank must have unlimited scope for conducting monetary policy. If this prerogative is limited, it undermines credibility. The constitutional court has created fresh uncertainty with this decision," he said.
The German court in Karlsruhe said there were grounds for concluding that the ECB’s back-stop plan for Italy and Spain - known as the OMT - breaches the ECB’s mandate and violates the treaty prohibition on “monetary financing” of budgets. It did not address QE as such, but that distinction is becoming irrelevant in Germany.
The German court said the ECB’s actions are probably “Ultra Vires”. If so, German institutions such as the Bundesbank are prohibited from taking part.
The ECB can in theory carry out rescue policies without the Bundesbank. Whether this would have any market credibility in a crisis is doubtful.
Financial Times writer Wolfgang Münchau says Germany’s Constitutional Court has Strengthened the Eurosceptics.
When the first headlines came out on Friday morning, it looked as if the German constitutional court had caved in. It decided to pass the case against Mario Draghi’s “whatever-it-takes” bond-buying programme to the European Court of Justice. In doing so it seemed to have washed its hands of a fiendishly difficult case. It looked as though the president of the European Central Bank had been fully vindicated over his outright monetary transactions, the official name of his programme to save the euro.You Deserve What You Get
But this interpretation is wrong. On Friday the German plaintiffs who brought the case were celebrating. It is not hard to see why. If you read past the first 15 pages of procedural jargon, you find the court concludes that OMT violates the German constitution. It accuses the ECB of making a power grab by extending its own mandate. It says the scheme endangers the underpinnings of the eurozone rescue programmes. Worse, it says OMT undermined deep principles of democracy. Were it to be used, it would deprive the German parliament of its fiscal sovereignty by forcing it to accept any losses the scheme generated. The ruling considers OMT to be debt monetisation, whereby a central bank prints money to finance sovereign debt. It is hard to think of any act short of a military coup that could violate so many important constitutional principles all at once.
I disagree with the ruling, as did two of the justices, who wanted the case dismissed. One of them angrily accused the court of overstepping its mandate. This was a fight from start to finish. The eurosceptics won.
What irks me is the you-deserve-what-you-get attitude.
If you look back to all the previous German constitutional court cases on the euro, the answer was always a variant of “Yes, but”. This ruling was the legal equivalent of “No, no, no” – with one important addition. The court is asking the ECJ to clarify important points of European law, including whether OMT is covered by the ECB’s mandate; whether OMT needs to be capped; whether it violates the sovereignty of national parliaments; and whether it constitutes monetary financing of government debt.
Most commentators think the ECJ will side with the ECB. I am not sure. The ECJ, too, is hard to predict. It might not take the case; or it might take it and let it ferment. If the ECJ were to side with the ECB, we would end up with a “constitutional crisis”, whereby German constitutional law directly contradicts EU law. The German court left no doubt that the Bundesbank and other German institutions were bound by the constitution. They also made clear they were not letting go of this case. The ruling gives the distinct impression that the judges are referring the case not up to a higher court but down to a lower court.
What happens now? The OMT is a phantom programme. It was never triggered. Then again, it may have already served its purpose: fooling investors into believing there is a backstop when there is not. The scheme was never formalised into European law. There is no OMT directive, nor will there be.
All this leads me to conclude that the immediate impact of the ruling is not so much that this case is suspended but that the OMT is suspended. I cannot see how it could be triggered in practice given such explicit condemnation by Germany’s highest court. I also expect it to strengthen the political position of eurosceptics in Germany and beyond. Watch out for Alternative für Deutschland, the new anti-euro party. As it prepares to campaign for May’s European parliament elections, it can claim the constitutional court is on its side.
At the very best, the ruling will make life even less certain.
Those looking for a bonus 4th reason to be pleased with this ruling, need only note that Münchau seems furious, complaining "What irks me is the you-deserve-what-you-get attitude."
I nearly always find Wolfgang Münchau's analysis interesting. However, I seldom agree with his conclusions about what is best.
In this case, the nannycrats seriously deserve to be punished for their arrogance, comeuppance, and general disregard for laws of all sorts simply because it suits their purpose.
Half a Tiger
My initial reaction was the court punted. I now wonder if they did so on purpose. Regardless, half a tiger is better than a kitten or an ostrich. The court could have ruled OMT was valid or simply passed on the case.
The euroskeptics are emboldened and I sense an outright massacre of nannycrats in the May parliamentary elections.
Things are looking up, unless you are a nannycrat.
Mike "Mish" Shedlock
